SEC Filings

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additional franchises covering an existing cable system's service area, and
(iii) prohibiting (with limited exceptions) the common ownership of cable
systems and co-located MMDS or SMATV systems. In January 1995, the FCC relaxed
its restrictions on ownership of SMATV systems to permit a cable operator to
acquire SMATV systems in the operator's existing franchise area so long as the
programming services provided through the SMATV system are offered according
to the terms and conditions of the cable operator's local franchise agreement.
The 1996 Telecom Act provides that the cable/SMATV and cable/MMDS cross-
ownership rules do not apply in any franchise area where the cable operator
faces "effective competition" as defined by federal law. The 1996 Telecom Act
also permits local telephone companies to provide video programming services
as traditional cable operators with local franchises.
The 1984 Cable Act also provides that in granting or renewing franchises,
local authorities may establish requirements for cable-related facilities and
equipment, but not for video programming or information services other than in
broad categories. The 1984 Cable Act limits franchise fees to 5% of cable
system revenue derived from the provision of cable services and permits cable
operators to obtain modification of franchise requirements by the franchising
authority or judicial action if warranted by changed circumstances. The
Company's franchises typically provide for payment of fees to franchising
authorities in the range of 3% to 5% of "revenue" (as defined by each
franchise agreement). Recently, a federal appellate court held that a cable
operator's gross revenue includes all revenue received from subscribers,
without deduction, and overturned an FCC order which had held that a cable
operator's gross revenue does not include money collected from subscribers
that is allocated to pay local franchise fees. The 1996 Telecom Act generally
prohibits franchising authorities from: (i) imposing requirements in the cable
franchising process that require, prohibit or restrict the provision of
telecommunications services by an operator; (ii) imposing franchise fees on
revenue derived by the operator from providing telecommunications services
over its cable system; or (iii) restricting an operator's use of any type of
subscriber equipment or transmission technology.
The 1984 Cable Act provides for, among other things, procedural and
substantive safeguards for cable operators and creates an orderly franchise
renewal process in which renewal of franchise licenses issued by governmental
authorities cannot be unreasonably withheld, or, if renewal is withheld and
the franchise authority acquires ownership of the system or effects a transfer
of the system to another person, such franchise authority or other person must
pay the operator either: (i) the "fair market value" (without value assigned
to the franchise) for the system if the franchise was granted after the
effective date of the 1984 Cable Act (December 1984) or the franchise was pre-
existing but the franchise agreement did not provide a buyout or (ii) the
price set in franchise agreements predating the 1984 Cable Act. In addition,
the 1984 Cable Act established comprehensive renewal procedures which require
that an incumbent franchisee's renewal application be assessed on its own
merits and not as part of a comparative process with competing applications.
The 1984 Cable Act also establishes buyout rates in the event the franchise is
terminated "for cause" and the franchise authority desires to acquire the
system. For franchises which post-date the existence of the 1984 Cable Act or
pre-date the 1984 Cable Act but do not specify buyout terms, the franchise
authority must pay the operator an "equitable" price. As amended by the 1996
Telecom Act, the 1984 Cable Act permits the cable operator to seek
renegotiation and modification of franchise requirements if warranted by
changed circumstances.
The 1992 Cable Act made several changes to the renewal process which could
make it easier for a franchising authority to deny renewal. Moreover, even if
the franchise is renewed, the franchising authority may seek to impose new and
more onerous requirements such as significant upgrades in facilities and
services or increased franchise fees as a condition of renewal. Similarly, if
a franchising authority's consent is required for the purchase or sale of a
cable system or franchise, such authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
such consent. Historically, franchises have been renewed for cable operators
that have provided satisfactory services and have complied with the terms of
their franchises. Most of the Company's franchises can be terminated prior to
their stated expirations for uncured breaches of material provisions.
Various courts have considered whether franchising authorities have the
legal right to limit franchise awards to a single cable operator and to impose
certain substantive franchise requirements (i.e., access channels,
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